Builtrite had sales of $700,000 and COGS of $280,000. In addition, operating expenses were calculated at 25% of sales. Builtrite also received dividends of $50,000 and paid out common stock dividends of $25,000 to its stockholders. A long-term capital gain of $70,000 was realized during the year along with a capital loss of $50,000. 1. What is Builtrite’s taxable income?

a. $257,000
b. $242,000
c. $280,000
d. $266,000

2. Based on their taxable income, what is Builtrite’s tax liability?

$83,480
$92,450
$77,630
$86,990

3. If we add to our problem that Builtrite also had $10,000 in interest expense, which of the following statements is correct (assuming the same marginal tax rate of 39%)?

a. Taxable income would increase by $10,000
b. Taxable income would decrease by $10,000.
c. Taxable income would decrease by $6,100.
d. Taxable income would increase by $6,100